Decision Paralysis

Decision-making, especially when faced with too many decisions, can present a challenge in any environment. During the Pandemic, most aspects of life have been turned upside down including general decision making. Upside down means what was formerly up is down and vice versa. It was easier to decide to practice social distance, mask-wearing, and washing hands. Harder decisions seemed to be revealed on the back end, such as whether to return to an in-person office, attending gatherings, and returning to old social rituals and routines.

What is “safe” for you might not feel “safe” for me and vice-versa. It was easy to decide not to travel because we couldn’t. It was easy to not spend money for most Americans and most schools only offered remote learning. Those were the easy decisions. More difficult decisions descend on us when there are options; this includes if/when to send children to school, finding safe activities, and providing an outlet for the anxiety around the unknown. It seems that buying furniture and buying hardware for home improvement was an easy decision as long as it was done online. Purchasing online was a straightforward decision because stores were mostly closed. The world of decisions became black and white, all or none, now or never. It was hard to see anything changing, maybe forever. Here we are at the cusp of a transition to what existed before Covid. How will this impact decision making and what can we learn from this experience? 

Research on decision-making indicates that biases influence behavior. Biases are acquired over a lifetime of observation of our childhood caretakers and others as well as our lived experiences. There are physiological and emotional factors that influence decisions as well as what Daniel Kahneman describes in his latest book as “white noise.” There are also different degrees of decisions. The decision for flight or fight has to be made immediately whereas the decision of deciding on a life partner has some emotional content, love at first sight, and it takes time to nurture the relationship and communicate your feelings as well as confirm reciprocal feelings. Often individuals transform the longer-term deliberative decisions with the spontaneous, impulsive short-term decision causing ineffective decision making. Several major biases have been identified as leading to ineffective decision-making. 

Overconfidence bias leads to a diminishment of critical thinking that generally leads to better decisions. Confirmation bias leads to hearing only that opinions that agree with a position. Loss aversion is a cognitive bias that makes the pain of losing money twice as great as the satisfaction of making money. Most importantly, in the current challenging environment of the pandemic and the transition out of it, recency bias should be anticipated. This bias refers to the tendency for individuals to feel as though whatever is happening now (pandemic, economic distress, social distancing, etc.) will be happening forever. Periods of euphoria and exuberance have the same impact.

Interestingly, the most effective strategy to insulate ourselves from biases is planning and in our case, financial planning. Organizing data, analyzing options, evaluating the pros and cons, breaking down the incremental steps in each direction, and estimating projections of financial and other consequences is the planning process that can give you the highest possibility to make the best decision.

Even as planners we recognize that we can only plan to a certain extent. To even the best-laid plans, life happens. Planning is iterative and directional, not necessarily prescriptive. The plan is only the plan until the next side-step, revised timeline, or major life event. Compared to the alternative without financial planning, the planning in itself generally results in our favor as we work deliberately towards our goals.

 

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